Why Are Gas Prices So High?

Elevated oil prices contribute to high gas prices.

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Updated · 6 min read
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Written by Taryn Phaneuf
Lead Writer
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Edited by Rick VanderKnyff
Senior Assigning Editor
Fact Checked

Updated on Oct. 3.

The average price of regular gas in the U.S. is $3.190 per gallon, according to AAA. Previous average prices:

  • Week ago: $3.220

  • Month ago: $3.325

  • Year ago: $3.798

Gas prices surged in 2021 and 2022 amid economic disruptions caused by the pandemic and Russia’s invasion of Ukraine — and they’ve never been the same. Today, gas prices are 30% higher than they were five years ago.

What’s keeping gas prices so high? Seasonal factors, supply-chain disruptions and gas tax hikes can play a role. But elevated oil prices are the main culprit.

The cost of oil typically represents more than half of the cost of a gallon of gasoline, according to data from the U.S. Energy Information Administration (EIA). So, a major reason gas prices are so high is that oil prices are still higher, on average, than they were before the pandemic and Russia’s invasion of Ukraine. That’s based on the price of West Texas Intermediate crude, which is used as the benchmark for oil prices in North America.

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Keep in mind that gas prices at the pump rarely reflect that day’s market conditions. Instead, they represent costs incurred weeks, even months before. That lag makes prices slower to rise and fall than news headlines might suggest. And while spot shortages, refinery production shortages or blending issues can drive up gas prices locally, big, nationwide swings in gas prices are almost always due to the price of crude oil.

Yes, gas prices have gone up

The average per-gallon price of regular gas was $2.601 in 2019, according to EIA data. Then, following Russia’s invasion of Ukraine, the national average peaked at $5.016 per gallon on June 14, 2022, according to AAA. Since then, gas prices have retreated, but they haven’t returned to pre-pandemic levels.

But they're dropping right now. Here's why

Gas prices have been dropping for weeks because of the declining price of oil. Low consumer demand and a return to winter-blend gasoline also are contributing to falling prices. At the moment, these are short-term trends happening within the larger picture of elevated gas prices.

🤓Nerdy Tip

Between May 1 and Sept. 15, gas refineries switch from winter-blend to summer-blend gasoline, which is more expensive to make. That's one reason gas prices tend to increase in the spring and summer and decrease in the fall and winter. Summer-blend gasoline is formulated to limit emissions during the warmer months when gas can evaporate more easily.

Here’s how gas prices compare today:

  • The average regular gas price in the U.S. as of Oct. 3 is $3.190 per gallon, according to AAA, which tracks gas prices. 

  • The national average is 10 cents higher than it was at the start of the year, following familiar seasonal patterns. 

  • But today’s price is 14 cents lower than last month’s average of $3.325 per gallon.

  • The price a year ago was $3.798.

Average gas price per state

The average gas price per state varies widely. A gallon of regular fuel costs about $1.99 more in the state with the highest average price of gas (California) than in the state with the lowest average (Mississippi), according to AAA data from Sept. 26.

How are gas prices determined?

Gas prices are determined by a complex set of factors that are at work long before the gas gets to your local station. According to the U.S. Department of Energy, those factors include:

  • The cost of raw crude oil, which fluctuates based on international supply and demand.The cost to refine crude oil into gasoline, which rises during warmer months.Taxes, which vary state-to-state.

Learn more about each of these factors below.

Most of the gasoline sold in the U.S. is refined here. But to produce gasoline, crude oil must be refined, and the crude oil used to produce gas in the U.S. is a mix of imported and domestic. The primary sources of imported crude oil in the U.S. are from Canada, Mexico, Saudi Arabia and Colombia. Russia was on that list until March 2022, before the war in Ukraine.

Because the U.S. can source some of its own oil, we tend to see lower costs at the pump than, say, European countries where the majority of crude oil is imported. But because the crude oil used to produce gasoline in the U.S. is not entirely sourced from the U.S., conditions of global production and trade can affect the cost of fuel sold at your local gas station.

Crude oil must be refined to produce fuel that can be sold to consumers. This conversion is done in petroleum refineries. The cost of refining changes throughout the year and varies by region. That cost also depends on the type of crude oil used; the ingredients blended into the fuel; the formulation that must be used in each region to meet air quality standards; and the processing technology used at each refinery.

There are four types of fuel available at the pump that will differ in price. The three non-diesel types of gasoline — regular, midgrade and premium — are categorized by octane rating, a measure of fuel stability (the pressure at which a fuel will combust in an engine).

  • Regular: The least expensive.

  • Midgrade or super: More expensive than regular but cheaper than premium and diesel.

  • Premium or super premium: Most expensive non-diesel gasoline.

The retail price of gas is also determined by federal, state and local taxes. The federal tax on gasoline is 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel.

States also have tax rates. Total state taxes and fees on gas in July 2024 averaged 32.6 cents per gallon, according to a NerdWallet analysis of U.S. Energy Information Administration data.

State tax rates vary widely. California’s rate (69.8 cents per gallon) and Illinois’s rate (67.1 cents) are highest, followed by Pennsylvania (58.7 cents). Alaska has the lowest state tax (9 cents per gallon), followed by Mississippi (18.4 cents) and Hawaii (18.5 cents).

The cost and profits of getting fuel to consumers also affect the price of gas. Once crude oil is refined and becomes gasoline, it is shipped via pipeline to terminals where it can be blended to meet local standards. From terminals, it is delivered via tanker truck to retail gas stations where you buy your fuel. The marketing and individual retailer costs — by chains or independent stations — will be further passed on to the consumer. Rent, traffic patterns, wages, equipment, insurance, local taxes and operational fees are also factors that will affect the price retailers will charge for gas.

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Why are California gas prices so high?

California tends to have the highest gas prices in the country because of the state’s environmental regulations, taxes and unique self-reliance on refining its own gasoline.

Did you know that the gasoline sold in California is different from gasoline sold anywhere else in the United States? Since the ‘90s, California has mandated that any gasoline sold in the Golden State be produced according to strict guidelines that reduce the gasoline’s overall emissions. As you might expect, California’s cleaner fuel blend is more expensive than the gasoline used by the rest of the nation.

Because of these regulations, more than 90% of gasoline used in California is refined in the state, according to the California Energy Commission. So, if any of the state’s refineries experience unplanned outages or disruptions, those gas prices climb even higher, since the state can’t boost its gasoline supply by importing dirtier fuel that wasn’t refined according to its regulations.

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Also, gas prices are high in California because there’s just less gasoline being refined in the state. In late 2022, California ​​mandated that all cars, trucks and SUVs sold in the state be zero-emission vehicles by 2035. Because of that, California’s refining industries are beginning to transition away from fossil fuels, according to The Hoover Institution, a public policy think tank at Stanford University.

Finally, taxes contribute to the state’s gas prices. Drivers in California pay 69.8 cents per gallon in state taxes — the highest state tax rate in the country.

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